Pittsburgh Life Sciences Incubator completes fundraising campaign

The Pittsburgh Life Sciences Greenhouse has finished raising its $8.1 million PLSG Accelerator Fund LLC, but two-thirds of that total, or $5.4 million, already has been invested or reserved.

One more big investment with capital set aside for subsequent rounds could pretty much sop up what’s left.

That will likely have the South Side-based economic development entity looking for capital again later this year.

“I clearly have my sights on raising another fund,” PLSG President and CEO John Manzetti said. “That’s part of my strategy.”

So was the rapid deployment. The fund, a first for PLSG and earmarked for its portfolio companies, has gone into eight local companies. Because of declines in government funding and struggling venture capitalists who are largely invested and having problems raising their own funds post-recession, PLSG wanted to assure capital for the companies it nurtures.

“We’ve all been cut over 67 percent from two years ago, so we have to scrounge, and we need other sources of funding,” Manzetti said.

PLSG’s 2011 investment budget, originally $1.5 million, was revised to $1 million. It received $1 million in funding from the state.

When PLSG Accelerator passed its midway point at the end of 2010, it was able to begin investing.

“We had our first close at $5.1 million and then we picked up $3 million,” Manzetti said. “This isn’t a huge fund, but we’re putting in $500,000 to $1 million and can put as much as $1.5 million in any company, and that makes a huge difference to a company raising $2 million to $3 million.”

That second group of investors included the Allegheny County Pension Fund, Central Financing Authority of Pennsylvania and high-net-worth individuals, including several local executives both current and retired.

CFA, the University of Pittsburgh and Carnegie Mellon University, plus local angels, invested in 2010. Some 85 individuals and organizations are investors in the fund all told, Manzetti said, including himself. PLSG’s close relationship with the companies accelerated the process of identifying and staking companies.

“We lopped off a little of the technology risk and the business risk because we’ve vetted these companies,” Manzetti said. “In some cases, we helped hire the management team.”

Paul Schmitt, managing partner of Wayne-based venture capital firm Novitas Capital and a member of PLSG Accelerator’s evaluation committee, said Manzetti and the greenhouse staff “know all the life sciences companies in Pittsburgh very well and they’re going to invest in the good ones,” which would appeal to investors.

Cohera Medical Inc. is among the companies that PLSG Accelerator invested in last year.

“Any time you have an organization that is willing to help early-stage and mid-stage companies, it’s good for the region and I commend them for doing it,” Cohera President and CEO Patrick Daly said.

But no one’s saying the fundraising climate is defrosting, least of all Manzetti.

The current fund was short of its originally announced $10 million goal. PLSG Accelerator also designated a $15 million limit that, realistically, no one expected to attain, but it is a common practice in fundraising to allow for a higher ceiling.

“It’s good to shoot for a big goal and $15 million is a big goal for this kind of a regionally focused fund,” Schmitt said. “Getting over $8 million was a big success. There’s a lot of funding for areas like direct media and energy, but in traditional technology areas like life sciences and health care, it’s very difficult, and it’s not going to change for a while.”

John Taylor, National Venture Capital Association research and financial affairs executive, said many funds across the country are “falling short” of reaching their announced goals.

“The reality is that there’s not a whole lot of difference between $8 million and $10 million,” Taylor said. “That’s roughly the size of the average venture round, and $8 million doesn’t go far.”

Clearly, $8 million was a crucial figure. The Central Financing Authority committed $2 million in a three-to-one match.

“If the climate had been better, I might have been able to get some pension funds in for $3 million to $4 million,” Manzetti said. “My goal was $10 million, and when we got past the $5 million mark, I honed in our $8 million, and that was our latest goal for the board, to close at $8 million.”

The fund also had a time limit, as per the terms of the deal, to be completed 12 months after the first close.

The real test for PLSG Accelerator is how effectively it returns money to the investors, which in turn sets the stage for how they and others will view subsequent funds. That would come through a sale or public offering.

“If he gets early liquidation events, which are big winners, it won’t be tough to raise another fund,” Schmitt said.

Also crucial, Taylor said, is attracting venture capital firms to co-invest or to lead subsequent rounds.

“We look forward to seeing them seed young companies that, hopefully, we’ll invest in in the future,” said Sean Sebastian, partner of Birchmere Ventures, South Side.